Average Crop Revenue attractive, say supporters

It's beginning to look like farmers will have the option of participating in a revenue-based, counter-cyclical payment program in the next two or three years no matter which version of the 2007 farm bill Congress passes.

The 2007 farm bill agreement that Senate Agriculture Committee Chairman Tom Harkin unveiled Oct. 17 would give producers the choice, beginning with the 2010 crop year, of participating in a revenue protection program or remaining in a traditional target price-based program.

Farmers could decide each year and by farm number whether they wanted to remain in the Average Crop Revenue Program or ACR contained in the Harkin proposal. (The farm bill the House passed in July also contains a revenue counter-cyclical option for producers.)

“The optional ACR program better allows producers to manage their farm's risk in today's uncertain and evolving farm environment,” Harkin told reporters participating in a telephone news conference. “The program makes good fiscal sense, too, as it can save $3 billion to $3.5 billion over five years.”

Harkin said savings from the ACR, which is similar to the revenue counter-cyclical legislation (S.1872) introduced by Sen. Dick Durbin, D-Ill., and Sen. Sherrod Brown, D-Ohio, last summer, would mean more funds for conservation, energy and rural development programs.

Acting Agriculture Secretary Chuck Conner seemed to endorse the ACR concept during a press briefing following a speech at the World Food Prize event in Des Moines, Iowa, although he said he hadn't seen many details of the program.

The new ACR would provide participating producers a fixed payment of $15 an acre on the lesser of the total crop base acres on the farm or the 2002-2007 average of acres planted to all covered commodities.

Unlike the current counter-cyclical program where payments are made when crop prices fall below specific targets, farmers would receive average crop revenue payments when the average per-acre revenue (price X yield) for a state falls below the per-acre guarantee for that state.

The state-level guarantee equals 90 percent of the product of the expected state average yield and the three-year moving average (including the current year) of the pre-planting price used to calculate coverage for revenue insurance products in the federal crop insurance program.

After the 2010 harvest, USDA would be required to calculate the actual state revenue using the harvest price for the commodity under the revenue insurance products and the actual state yield per planted acre. If the actual state revenue is less than the state-level guarantee, producers would receive a payment equal to 90 percent of the difference adjusted for each producer's average APH yield in relation to the state yield.

The ACR program differs from the initial Iowa Corn Growers Association and National Corn Growers Association counter-cyclical proposal in that the latter would have generated payments based on county-level target revenue. USDA officials and others have argued against the county-level revenue program because it would be more expensive to operate.

“A revenue protection program in the 2007 farm bill offers a much-needed choice to farmers,” said Ohio's Brown. “Farmers can either stick with the current programs that do little to protect against drops in revenue or switch to a forward-looking policy that better protects against volatile crop prices, natural disasters and rising production costs.”

In 2007, Brown noted, Ohio farmers faced devastating weather, including frost and freeze conditions in early April that damaged fruit and vegetable production and severe flooding in late August that ruined crops.

States in the Southeast, meanwhile, were hit by the early April “Easter” freeze, but also have been suffering through a debilitating drought while upper Midwest states, such as Iowa, have already received most of their annual rainfall for the year. In either case, farmers probably would have received ACR payments.

The $3 billion to $3.5 billion in savings for the ACR would result from farmers opting out of current program benefits to accept the revenue-based program. Farmers who choose the ACR would no longer receive the direct payments or loan deficiency payments contained in the 2002 farm bill or be eligible for non-recourse loans.

“The Congressional Budget Office believes farmers will choose the ACR,” said Harkin. “If they chose the ACR, that means we will not be spending as much on loan deficiency payments.”

Brown said he decided to introduce legislation authorizing the revenue counter-cyclical program contained in the Durbin-Brown bill after hearing from constituents who are corn farmers and members of the National Corn Growers Association.

He said the Durbin-Brown bill's proposals were developed by Carl Zulauf, professor of agricultural economics at Ohio State University. (The original idea supported by the Iowa Corn Growers Association and the National Corn Growers Association was based on the group revenue insurance program conceived by ag economists at Iowa State University, however.)

“The ACR program would provide a better safety net for farmers by replacing price-support programs with a comprehensive, two-tier revenue protection program,” he said. Under the ACR, farmers would rely on private revenue insurance at the individual level, while the government handles widespread losses at the state level where the private insurance market is ineffective.

According to Brown, the benefits of the approach would include:

Better protection for farmers by protecting overall farm revenue rather than price. Iowa State University modeling estimates that the cost will be about three-fourths of today's insurance while providing farmers with revenue protection of 90 percent.

Less production distortions by using a revenue target that adjusts with the market rather than target prices and loan rates set by Congress. The current program can encourage farmers to “plant for the program” and not for market demand. The ACR program reduces the incentive to overproduce on marginal land and helps reduce trade distortions. All commodities are treated equally based on market risk.

Private crop insurance works better by integrating private revenue insurance with federal revenue protection into a comprehensive program — making private revenue insurance more cost effective and allowing higher coverage levels at a lower cost for farmers.

The program would also save money due to efficiencies by integrating crop insurance and commodity support programs, and eliminating excessive and duplicative payments. “No longer will payments be made when prices momentarily fall, but a farmer's overall revenue is up,” said Brown.

Farm-group response to the ACR proposal was luke-warm. “We are not enamored with the proposed revenue-assurance option and have numerous questions and concerns about how it would work and benefit those who select it,” said National Farmers Union President Tom Buis.

“However, it is optional, not mandated, and if it helps accomplish the goal of moving the farm bill forward, we are supportive,” he said.